USD/JPY – Yen Dips on Pessimistic BoJ Minutes

USD/JPY has posted gains on Monday, as the pair is trading at the 108 line in the European session. On the release front, the Bank of Japan released the minutes from its April policy meeting. Japanese Average Cash Earnings posted a strong gain of 1.4%, above expectations. Consumer Confidence slipped to 40.8 points, matching the forecast. Today’s sole US release is the Labor Market Conditions Index.

The yen has moved lower on Monday, following the release of the BoJ minutes. The minutes indicated that some BoJ members felt that the central bank’s inflation target of 2.0% needs to be lowered. As well, some policymakers said that the BoJ’s recent policy of negative rates should be maintained, as a withdrawal from the policy, which was adopted in January, could confuse the markets and undermine confidence in the BoJ. Meanwhile, Japanese officials continue to warn against “currency manipulations”. On Monday, Finance Minister Taro Aso said Monday that the government would intervene if currency movements affected the country’s economic and fiscal policies. However, it is doubtful that the government or the BoJ can do much to prevent speculators who have their eye on the yen, which has surged in 2016 and climbed close to the 105 level last week. Elsewhere, Japanese data was mixed. Average Cash Earnings improved to 1.4%, as the indicator continues to post stronger gains. However, Consumer Confidence dropped to 40.8 points, pointing to deep pessimism on the part of the Japanese consumer.

It was a tough week for US employment indicators. Nonfarm Payrolls looked awful in April, as the key indicator slid to just 160 thousand, well short of the forecast of 203 thousand. This marked the lowest reading in seven months. There was concern that NFP, one of the most important indicators, would post soft numbers after weak job numbers earlier this week. The ADP Nonfarm Payroll report dropped to 156 thousand, compared to an estimate of 205 thousand and Unemployment Claims jumped to 274 thousand, missing the estimate of 261 thousand. In other releases on Friday, wage levels showed no change, as Average Hourly Earnings posted a weak gain of 0.3%. The unemployment rate remained steady at 5.0%.

Will the Federal Reserve raise rates in the near future? In its April policy statement, the Fed didn’t raise rates, but the message to the markets with regard to the US economy was one of cautious optimism. The statement noted continuing improvement in the labor market but added that it was keeping a watchful eye on low inflation levels. The Fed appeared to leave the open to a June hike, but the weak payrolls report has greatly reduced the likelihood of a June move. On Friday, New York Fed president William Dudley said he remains confident that the Fed could raise rates as much as twice this year, but many analysts are skeptical if the Fed will raise rates before 2017.

USD/JPY Fundamentals

Sunday (May 8)

• 19:50 Japanese Monetary Policy Meeting Minutes
• 20:00 Japanese Average Cash Earnings. Estimate 0.6%. Actual 1.4%

Monday (May 9)

• 1:00 Japanese Consumer Confidence. Estimate 40.8. Actual 40.8
• 10:00 US Labor Markets Conditions Index
• 23:45 Japanese 10-year Bond Auction

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Monday, May 9, 2016

USD/JPY May 9 at 6:50 EDT

Open: 107.34 Low: 107.23 High: 108.09 Close: 108.01

USD/JPY Technical

• USD/JPY has posted steady gains in the Asian and European sessions
• 107.57 has switched to a support role following gains by USD/JPY earlier on Monday
• 108.37 is a weak resistance line
• Current range: 107.57 to 108.37

Further levels in both directions:

• Below: 107.57, 106.19, 105.18 and 104.12
•  Above: 108.37, 109.87 and 110.66

OANDA’s Open Positions Ratio

USD/JPY ratio has shown movement towards long positions, which command a strong majority (71%). This is indicative of strong trader bias towards USD/JPY continuing to move to higher ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.